UOB Kay Hian (UOBKH), Maybank Securities and CGS International analysts have maintained “buy” and “add” calls on Singapore Post S08 (SingPost) with higher target prices of 72 cents, 77 cents and 74 cents respectively, after the company announced its plans to sell its Australian business.
On Dec 2, SingPost said it has entered into an agreement with Pacific Equity Partners for the complete sale of its assets, including Freight Management Holdings (FMH), CouriersPlease and recently acquired Border Express at an enterprise value of A$1.02 billion ($890 million).
This includes around A$220 million of debt, where SingPost would acquire A$776 million in cash and post an expected one-off gain on disposal of around $312 million upon completion. The transaction is expected to be completed by end March 2025 and is unlikely to be rejected by the Australian authorities, UOBKH analyst Llelleythan Tan Yi Rong says.
“In our view, this transaction was a surprise given that we expected a strategic minority stake sale versus a complete sale of the Australian business, given that this segment was the group’s only significant growth driver,” he adds.
Maybank’s Jarick Seet notes that the Australia business has been the main growth driver for SingPost in the past few years. With the acquisition of Borders Express just completed earlier this year, management could have continued to grow the business and realise its synergistic values, Seet points out.
“However, with the 100% sale, we don’t think it would be rational to reinvest the proceeds in a new business unless it is an extremely attractive opportunity. We believe that excess cash will be returned to shareholders and we expect more asset sales going forward like Famous Holdings, SingPost centre and its post offices after discussions with local authorities,” he says.
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Tan concurs, adding that without the Australian business driving growth, there are limited earning drivers for SingPost. This is as both the postal and freight forwarding businesses face secular and macroeconomic headwinds, while the stable property segment has limited upside potential.
To this end, CGSI’s Ong Khang Chuen thinks investors are likely to demand a significant risk premium for the stock if SingPost chooses to reinvest the proceeds from the sale of FMH. Therefore, Ong believes a more likely outcome for SingPost going forward would be to double-down on its asset monetisation strategy and return cash to shareholders.
SingPost is considering a special dividend and would update the market in due course. Assuming that all of the remaining $362 million cash proceeds was used for the special dividend, this would lead to a special dividend of around 16 cents per share and a dividend yield of 27%, Tan notes. That said, he thinks the company will prioritise future growth opportunities and deleveraging its balance before a large special dividend.
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“Using $100 million of the remaining $362 million cash proceeds would result in a special dividend of around 4.4 cents per share and a dividend yield of 8%. As our base case, we assume that SingPost would minimally maintain its FY2025 dividend for FY2026-FY2027 via special dividends,” he adds.
Following this, Maybank believes that the roadmap going forward to return shareholder value is strengthened and shareholders could potentially get up to 86 cents per share if all its assets are monetised. The analyst notes that the downside risk is now limited, highlighting that key shareholders are also monetising non-core assets to return to its own shareholders.
As at 9.50am, shares in SingPost are trading at an unchanged 58.5 cents.
